Theory and Basis of Taxation
Theory and Basis of Taxation
Theory and Basis of Taxation
The power of taxation proceeds upon the theory that the existence of government is a
necessity; that it cannot continue without means to pay its expenses; and that for these
means, it has a right to compel all its citizens and property within its limits to contribute.
The basis of taxation is found in the reciprocal duties of protection and support
between the State and its inhabitants. In return for his contribution, the taxpayer
received benefits and protection from the government. This is the so-called benefits
received principle.
The life blood theory constitutes the theory of taxation, which provides that the
existence of government is a necessity; that government cannot continue without means
to pay its expenses; and that for these means it has a right to compel its citizens and
property within its limits to contribute.
In Commissioner v. Algue, the Supreme Court said that taxes are the lifeblood of
the government and should be collected without unnecessary hindrance. They are what
we pay for a civilized society. Without taxes, the government would be paralyzed for
lack of motive power to activate and operate it. The government, for its part, is
expected to respond in the form of tangible and intangible benefits intended to improve
the lives of the people and enhance their moral and material values.
Benefit-received principle
This principle serves as the basis of taxation and is founded on the reciprocal duties of
protection and support between the State and its inhabitants. Also called symbiotic
relation between the State and its citizens.
In return for his contribution, the taxpayer receives the general advantages and
protection which the government affords the taxpayer and his property. One is
compensation or consideration for the other; protection for support and support for
protection.
However, it does not mean that only those who are able to and do pay taxes can enjoy
the privileges and protection given to a citizen by the government.
Taxes are essential to the existence of the government. The obligation to pay taxes
rests not upon the privileges enjoyed by or the protection afforded to the citizen by the
government, but upon the necessity of money for the support of the State. For this
reason, no one is allowed to object to or resist payment of taxes solely because no
personal benefit to him can be pointed out as arising from the tax. [Lorenzo v.
Posadas]
ASPECTS OF TAXATION
The first is taxation, strictly speaking, while the second may be referred to as tax
administration. The two processes together constitute the taxation system.
TAX SYSTEMS
Constitutional mandate
The rule of taxation shall be uniform and equitable. The Congress shall evolve a
progressive system of taxation. [Section 28(1), Article VI, Constitution]
A progressive system of taxation means that tax laws shall place emphasis on direct
taxes rather than on indirect taxes, with ability to pay as the principal criterion.
A regressive system of taxation exists when there are more indirect taxes imposed than
direct taxes.
Tax the rate of which decreases as the tax base or bracket increases. There are no
regressive taxes in the Philippine jurisdiction.
Regressive tax rates should be differentiated from a regressive system of taxation which
exists when there are more indirect taxes imposed than direct taxes.
1. Fiscal adequacy
It means that the sources of revenue should be sufficient to meet the demands
of public expenditures. [Chavez v. Ongpin, 186 SCRA 331]
It means that the tax burden should be proportionate to the taxpayers ability to
pay. This is the so-called ability to pay principle.
3. Administrative feasibility
It means that tax laws should be capable of convenient, just and effective
administration.